IMF seeks to clarify position on Greek debt after “misinformation”

13 Dec 16

Claims the International Monetary Fund is demanding more austerity in Greece amount to ‘turning the truth upside down’, the fund has argued.

Greece Capital Shutterstock.jpg

Greece Capital

Photo: Shutterstock


In a blog post published yesterday, the IMF said it was Greece and its European partners that had agreed further austerity measures under the country’s €86bn bailout, exposing the tensions between the fund and European institutions in the disagreement on the Greek recovery.

So far, the IMF has refused to participate in the third Greek bailout, which it has said is unachievable. The fund said the post was needed to clear up “misinformation” regarding its stance, which, as the blog makes clear, drastically departs from Europe’s view.

“This [suggestion the IMF is calling for greater austerity] is not true, and clarifications are in order,” Poul Thomsen, head of the IMF’s European department, responsible for the Greek programme, and Maurice Obstfeld, the fund’s chief economist, wrote in a blog post published yesterday.

“Claiming that it is the IMF that is calling for this turns the truth upside down.”

The post stressed that the fund had in fact warned the Greek government and its European partners that a target to reach a budget surplus of 3.5% of GDP by 2018 would require a degree of austerity that could threaten the economy’s nascent recovery.

In addition, it continued, the fund projected the measures agreed under the programme would only be sufficient to achieve a surplus of 1.5% of GDP, which in the IMF’s view was enough for the fund to support to programme.

“We did not call for additional measures to achieve a higher surplus,” it said. “But contrary to our advice, the Greek government agreed with the European institutions to temporarily compress spending further if needed to ensure the surplus would reach 3.5%.”

The post reiterated that, in the fund’s view, Greece “does not need more austerity at this time”.

Rather, Greece needs “growth-friendly” and “fair” reforms – mainly to the structure of its taxes and spending – to come anywhere close to sustaining “even a modest” surplus and realising longer-term growth ambitions.

The country’s bailout packages continue to cut investment and discretionary spending, resulting in “decaying” public infrastructure and services.

“These cuts have already gone too far,” said Thomsen and Obstfeld. Instead, the country needs to modernise, address an income tax regime that exempts more than half of households and overhaul its “extremely generous” pension system that costs nearly 11% of GDP per year.

In any case, the reforms required under the programme and the debt relief provided need to “add up in a credible manner”, they continued.

Countries like Germany, where support for the bailout is faltering, are eager for IMF endorsement as this would be seen to give the programme credibility.

But Thomsen and Obstfeld said that the current combination of targets, reform and debt relief is “simply not credible”.

“Not even a surplus of 1.5% of GDP is consistent with strong growth without pension and tax reforms... it should be obvious that pushing the budget to a surplus of 3.5% of GDP will take an even larger toll on growth.”

If Greece and its European partners agree on a short-term surplus target of 3.5%, the post argued there needs to be a plan as to how this extra 2% is going to be achieved.

“This would require significant additional measures that are not yet in place,” they wrote, adding that these would be needed to be legislated for upfront to prevent “vested interests” from hampering their implementation.

“If Greece agrees with its European partners on ambitious fiscal targets, don’t criticise the IMF for being the ones insisting on austerity when we ask to see the measures required to make such targets credible.”

Did you enjoy this article?

Related articles

Have your say


CIPFA latest

Most popular

Related jobs

Most commented

Events & webinars